Based on Apple’s revised financial disclosure, the Above Avalon expectation meters have received a makeover for 2Q19 earnings. Unit sales meters have been retired and replaced with revenue meters. In addition, an entirely new expectation meter is being included to reflect Apple’s changing business as non-iPhone revenue now plays a larger part in Apple’s growth story.
The following table contains my Apple 2Q19 estimates.
The methodology and perspective behind the preceding estimates are found in my 3,400-word Apple 2Q19 earnings preview available here exclusively for Above Avalon members. (To become a member and access my full earnings preview, visit the membership page.)
I am publishing three expectation meters for Apple's 2Q19:
3Q19 revenue guidance
My expectation is for Apple to report continued weak iPhone revenue growth in 2Q19 as the company spent much of the quarter working through an iPhone channel inventory build that took place in 1Q19. This channel inventory headwind was partially offset by Apple’s move to cut iPhone pricing outside the U.S. and more attractive offers for iPhone upgrades in the U.S.
While Apple is no longer disclosing iPhone unit sales, the company will continue reporting iPhone revenue. Accordingly, in order to estimate revenue, one will have to derive estimates for iPhone unit sales and average selling price (ASP).
Apple provided some clues regarding iPhone sales mix in order to reach more reliable estimates for ASP. In addition, the company’s not-so-secret strategy of cutting iPhone pricing outside the U.S. will impact ASP. Refined modeling work when it comes to iPhone channel inventory changes will lead to more accurate estimates for iPhone unit sales. Given the moving parts, there will likely be a wider-than-usual discrepancy when it comes to iPhone revenue estimates as analysts with less robust Apple earnings models struggle to adapt to changes in disclosure.
iPhone revenue that exceeds $33B would be considered strong as it bodes well for Apple to report improved iPhone sell-through (i.e. customer) demand in the second half of 2019. However, iPhone revenue of less than $30B would point to continued problematic iPhone sell-through demand.
For the first time, non-iPhone revenue is receiving its own Above Avalon expectation meter. Apple’s non-iPhone revenue includes the following line items:
Wearables / Home / Accessories
One of the major themes from Apple’s 1Q19 earnings is that despite weak iPhone sales, the company’s non-iPhone side of the business performed well with 19% revenue growth, driven by robust wearables and Services growth. In addition, the Mac and iPad product categories demonstrated stabilization. Much attention will be given to monitoring whether or not this trend continued in 2Q19.
My expectation is for Apple to report $27B of non-iPhone revenue. A revenue number north of $29B would be considered strong while a number less than $26B would be on the weak side.
Consensus is calling for Apple to report $52B of revenue in 3Q19. My estimate is for Apple to announce 3Q19 revenue guidance in the range of $52B to $55B. There are two possible explanations for the difference: Wearables revenue expectations and different estimates for iPhone sell-through demand.
Additional information on my perspective and thoughts heading into Apple’s 2Q19 earnings are available in my full earnings preview, which contains three parts:
To access my earnings preview and receive my Apple earnings review in your email inbox later this week, sign up at the membership page.